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Moody's lowers Argentina's Foreign Currency Bond Ceilings

October 26, 2012 Moody's Investors Service
New York, October 25, 2012 -- Moody's Investors Service has today lowered Argentina's foreign-currency bond ceiling to B3 from B2, aligning the ceiling with the sovereign's own foreign- and local-currency bond ratings of B3. The lowering of the foreign-currency bond ceiling reflects the rating agency's rising concern that private sector and local government Argentine debt issuers may be unable to access foreign exchange.


Moody's notes that this ceiling change has limited rating implications for structured finance and non-sovereign credits in Argentina, other than Argentinean banks and a limited number of infrastructure credits. All Argentinean foreign currency bank debt ratings, which are already subject to the foreign currency bond ceiling, are likely to be downgraded to a maximum foreign currency rating of B3. Additionally, a limited number of infrastructure issuers, with no material assets or operations outside Argentina, that currently have foreign currency-denominated debt issued under international law are likely to be affected by this action. In each case, actions will be announced shortly.

Argentina's central bank has for some time controlled the purchase of foreign exchange by residents. Restrictions have been tightening over time and the central bank recently refused to provide the foreign exchange needed by a bond issuer to meet a debt service payment. In particular, the Province of Chaco was recently denied foreign exchange to make a debt service payment on a bond issued in Argentina and payable in US dollar, thereby failing to make a contractually obligated payments in US dollars. While Moody's recognizes that the central bank currently permits the purchase of foreign exchange to meet debt service payments on bonds that are issued under international law and payable abroad, the growing restrictions on access to foreign exchange for payment in the domestic market make the availability of foreign exchange for external debt service payments less certain.

Moody's foreign-currency bond ceilings reflect transfer and convertibility risks and denote the maximum credit rating achievable in foreign currency for a domestic debt issuer, absent dependable access to foreign exchange through overseas operations or structural features to mitigate transfer and convertibility risks. In Argentina, the foreign-currency bond ceiling denotes the maximum rating achievable for debt instruments which are issued and payable overseas under international law. Current regulations do not contemplate the central bank providing access to foreign exchange for the repayment of foreign-currency debt issued domestically under Argentine law. Therefore, domestic-law foreign-currency debt instruments are subject to greater default risk and will generally be rated lower than the foreign-currency bond ceiling.

The principal methodology used in this rating was Local Currency Country Risk Ceiling for Bonds and Other Local Currency Obligations published in August 2012. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.
Company — Argentina
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    Republic of Argentina
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